Eateries, Inc.

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Eateries, Inc.

3240 West Britton Road, Suite 202
Oklahoma City, Oklahoma
U.S.A.
Telephone: (405) 755-3607
Fax: (405) 751-7348

Public Company
Incorporated: 1984
Employees: 3,361
Sales: $94.6 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: EATS
NAIC: 72211 Full-Service Restaurants

Eateries, Inc. operates full-service restaurant chains in 26 states, relying primarily on the business generated by its two mainstay concepts, the 48-unit Garfield’s Restaurant & Pub and the 13-unit Garcia’s Mexican Restaurants. The defining characteristic of the company is found in its original restaurant concept, Garfield’s Restaurant, the success of which is attributed to its location in small-town shopping malls, a market mostly ignored by Eateries’ competitors. In addition to the Garcia’s chain, acquired in 1997, Eateries operates two Pepperoni Grill restaurants and an urban version of its Garfield’s Restaurant concept, a nine-unit chain that operates under the Garfield’s Café banner.

Background of the Founder

The architect behind Eateries’ creation was a Connecticut native who found a wealth of opportunity in Oklahoma. Throughout his life, Vincent F. Orza, Jr., demonstrated an irrepressible desire to do what others claimed he was incapable of achieving. As a teenager, his high school guidance counselor informed him that he lacked the qualities required of a prospective college student. Orza ignored the advice and won a scholarship to Oklahoma City University, graduating in two and one-half years. Having already proved his guidance counselor wrong, Orza cast further doubt as to the counselor’s professional capabilities with his subsequent achievements. He took a job teaching school while he pursued his master’s degree, which he earned in nine months. By the time he was 21 years old, Orza had two degrees and a year of teaching experience to his credit, clearly thriving in the role of an academic. He decided to pursue a doctorate degree and enrolled at the University of Oklahoma, where he earned his Ph.D. in education by the time he was 25. From there, Orza’s interests wandered, leading to an array of occupations before he decided to found Eateries.

During the early 1970s, Orza’s adopted state of Oklahoma was beset by a pernicious economic crisis. While watching the news, Orza found exception in a local television station’s coverage of the oil embargo that stripped the economic vitality of Oklahoma and neighboring states. He wrote a letter expressing his views, which ultimately steered him in a new professional direction. He was hired as a news anchor and a reporter, performing his duties during the night. During the day, he taught at the School of Business at Central State University. Between his two jobs, the indefatigable Orza found time for a third occupation. He worked as a consultant in marketing and economics, which introduced him to the restaurant business and supplied the kernel of inspiration for the creation of Eateries and its flagship chain, Garfield’s Restaurant.

Orza’s first connection with the restaurant business came through one of his consulting clients, Kelly-Johnston Enterprises, which operated franchised units of the Chi-Chi’s restaurant chain. Orza was intrigued by the possibilities of a casual-theme restaurant concept, but the timing of his interest could not have been worse. While Orza was entertaining the thought of starting his own restaurant, Oklahoma was deep in an economic trough, caused by what was referred to as the “Oil Bust.” Orza again received advice he ignored and resolved to open his first Garfield’s Restaurant. Orza later reflected on his decision to abandon his numerous careers and to devote all his energies toward Eateries in a March 19, 1990 interview with Nation’s Restaurant News. “I basically did it to prove people wrong,” he explained, adding “People kept telling me I couldn’t do it. But it was worth the opportunity and the risk. I built the company in spite of the recession.”

First Garfield’s Restaurant Opens in 1984

Orza opened the first Garfield’s Restaurant in November 1984 in Oklahoma City. The restaurant was named after a fictional character created by the company named Casey Gar-field, a 19th century explorer who traveled the world, sampling its cuisine. Supposedly, the restaurant was meant to pay tribute to Garfield’s travels, both with its menu and its decor. Offering Chinese, Tex-Mex, Italian, and American cuisine, the restaurant featured equally eclectic trappings, centered around a turn-of-the-century theme and filled with international bric-a-brac. As the concept developed into a chain, Garfield’s Restaurant became best known for the cups of crayons on each table, which customers were encouraged to use to doodle on the white, newsprint tablecloths.

Orza survived the recessive economic conditions and secured an appreciable presence in Oklahoma. Two years after its inception, Eateries operated six Garfield’s Restaurants and another, more upscale concept called The Steak Joint. To further expand his chain of stores, which were located in Oklahoma City, Norman, Edmond, and Stillwater, Orza turned to the stock market for expansion capital, completing Eateries’ initial public offering of stock in 1986. By the end of the decade, as the chain approached two dozen units, Orza’s success with Garfield’s Restaurants had earned his company national recognition. In 1989, Inc. magazine ranked the Eateries chain as the 19th fastest growing small public company in the United States, vindicating Orza’s decision to start the company in an uncertain economic environment.

Recessive economic conditions again greeted Eateries as it entered the 1990s. The company shrugged off the affects of the nationwide economic downturn, however, and expanded beyond Oklahoma’s borders into Texas, Kansas, and Missouri. Much of the company’s ability to succeed was credited to Orza’s policy of site selection for the Garfield’s Restaurant chain. He chose secondary markets, preferring to establish units in high-traffic shopping malls in small towns, picking sites most of his larger competitors ignored. The strategy delivered steadily increasing sales and profits, as well as consistently rising business volumes for individual units. The company’s market focus drew praise from industry pundits, typified in one restaurant stock analyst’s assessment of Eateries in the May 10, 1993 issue of Nation’s Restaurant News. “Not only are they growing with well-run units,” the analyst noted, “but they are growing in areas with little competition. Many of their units are near high-traffic generators like cineplexes and other entertainment centers in the mall. These secondary markets, in a shopping mall, are the kinds of places the big players don’t pay any attention to.”

Once the early 1990s recession ended, Orza was ready to renew his expansion efforts. The company signaled its readiness to push ahead aggressively by turning to Wall Street again, completing a secondary offering in February 1994 that raised $7 million. At the time of the stock offering, the Garfield’s Restaurant chain comprised 34 units, but with a fresh infusion of cash the total was expected to grow at a pace decidedly faster than in previous years. The company planned to establish ten new Garfield’s Restaurant units in 1994 and another 15 restaurants in 1995.

Acquisitions Dominate the Late 1990s

As Eateries entered the mid-1990s, a new expansion strategy began to take shape. Since its inception, the company had achieved its growth through internal means, first by creating its own dinner-house concept and then by establishing its own stores. Beginning in 1994, however, the company showed its first signs of turning to external means to expand its scope of operations. Although Orza continued to add units to the Garfield’s Restaurant chain from the mid-1990s forward, he accelerated the company’s internal growth by expanding through acquisitions. Toward this end, Orza moved slowly at first, but by the late 1990s he had thoroughly been won over by the appeal of expanding by purchasing established restaurant chains.

Approximately 40 Garfield’s Restaurants were in operation in 18 states when, in November 1994, the company announced it had agreed to acquire a 150-seat Italian restaurant named Pepperoni Grill from Val Gene Associates Restaurant Group. Located in Oklahoma City, the restaurant’s menu featured a variety of Italian entrees and brick-oven baked pizzas in particular. The transaction closed in January 1995. At the time of the announcement, Orza remarked that the Pepperoni Grill and Garfield’s Restaurant concepts were being considered for tandem mall sites, but the Pepperoni Grill concept was never treated as an expansion vehicle. One more restaurant was established, but after that the company announced it was no longer considering adding any more units.

Key Dates:

1984:: Vincent F. Orza, Jr., opens the first Garfield’s Restaurant in Oklahoma City.
1986:: Orza’s restaurant holding company, Eateries, Inc., completes its initial public offering of stock.
1994:: A secondary offering of stock provides Eateries with the resources to pursue expansion.
1995:: Eateries acquires Pepperoni Grill.
1997:: Famous Restaurants sells 17 restaurants to Eateries.
1998:: Eateries focuses on Garfield’s Restaurants and Garcia’s as its major expansion vehicles.
1999:: Eateries acquires Bellini’s Ristorante & Grill and Tommy’s Italian-American Grill.

The purchase of Pepperoni Grill was not an acquisition to excite Orza’s passion for purchasing established restaurant companies, but Eateries’ next acquisition spurred Orza to scour the country for suitable acquisition candidates. In August 1997, Eateries agreed to acquire 17 restaurants from Phoenix-based Famous Restaurants Inc. The transaction, which was completed in November 1997, significantly increased Eateries’ revenue volume, adding the $32 million in sales the 17 restaurants collected in 1996 to Eateries’ 1996 sales of $56 million. Included with the deal were 11 Garcia’s Mexican Restaurants, five Casa Lupita Mexican Restaurants, and one Carlos Murphy’s Restaurant, all of which were combined in a wholly owned subsidiary named Fiesta Restaurants Inc. To the 53 Garfield’s Restaurants and two Pepperoni Grills situated across the Sunbelt and the North Central states, the company’s geographic presence was augmented by five restaurants in Phoenix, two in northern California, two in Colorado, and eight units scattered among Florida, Idaho, Illinois, New Jersey, Oho, and Utah. The estimated price of the acquisition was $10.8 million.

In Orza’s mind, the advantages Eateries gained from the Famous Restaurants acquisition provided a compelling argument for further acquisitions. He perceived the purchase of the 17 restaurants as “a safer bet than building from scratch,” according to his interview with Nation’s Restaurant News on December 15, 1997. His next statement suggested an acquisition campaign was in the making at company headquarters. “We think there are a lot of good small- to medium-sized companies, just like Famous,” Orza said, “and they can be bought for less money than they can be built.” Orza noted that the company was searching for 15- to 40-unit restaurant companies to acquire, declaring, “We’re on the prowl.”

Acquisitions provided an expedient, cost-efficient way for Eateries to fatten its portfolio of restaurant properties, but the company did not forsake internal measures as a way to promote growth. While eyes were drawn to the signal Famous Restaurants acquisition, Eateries begin experimenting with its mainstay Garfield’s Restaurant concept, searching for alternative methods to increase revenues. In 1997, the company unveiled Garfield’s Café, an urban version of the company’s predominantly small-town, rurally based chain. Initially, the company tested the concept in six major urban markets, offering a menu that was smaller and less expensive than the selection provided at traditional Garfield’s Restaurant units. Early performance results were encouraging, prompting the company to establish two additional Garfield’s Cafés and to convert a traditional Garfield’s Restaurant to the Café format in 1998. By the end of 1998, there were nine Café locations in operation. There were no plans to establish additional Café units in 1999.

In the wake of the Famous Restaurants acquisition, Orza showed a preference for the Garcia’s format over the other units operated by the Fiesta Restaurants subsidiary. As part of Eateries’ plan to concentrate expansion on the Garcia’s chain, divestitures occupied the company’s attention during the late 1990s. In February 1998, Eateries sold three of the Casa Lupita restaurants to Chevy’s, Inc., which led to a second agreement, concluded in May 1998, that passed ownership of a fourth Casa Lupita unit to Chevy’s. As these separate transactions were taking place, Eateries closed the remaining Casa Lupita unit under its control and converted its lone Carlos Murphy’s unit into a Garcia’s, leaving the company sharply focused on its two major restaurant chains, Garfield’s Restaurant and Garcia’s.

As Eateries entered the 21st century, its activity during the late 1990s served as a model for the expansion expected to occur in the decade ahead. In 1998, the company built and opened two new Garfield’s Restaurant units in regional malls, staying true to the market focus that underpinned the chain’s success throughout its history. The company also purchased three Garfield’s Restaurant units in July 1998 that it had franchised previously, a move signaling that in the future the company would focus its expansion efforts on company-owned restaurants rather than franchised restaurants. A concession stand version of Garcia’s also opened in 1998, debuting at BankOne Ball Park in Phoenix. In 1999, the company planned to open six Garfield’s Restaurant outlets and Garcia’s restaurants, as it pushed forward with expansion through internal means. The company also made progress on the acquisition front, signing agreements to purchase Bellini’s Ristorante & Grill and Tommy’s Italian-American Grill in May 1999. As Eateries exited the 1990s, its growth was expected to come from the continued expansion of its two primary chains and via acquisitions, an avenue of growth Orza planned to explore more fully in the future.